Business landscape and growth determinants of micro‑ and small enterprises working in WASH sector: evidence from Ethiopia
Abstract
This study aims at assessing business landscape and growth determinants of microand small enterprises working in WASH sector. The study also investigates the effect of determinant factors on enterprise growth. The study population comprised 6000 enterprises working in six cities. The study used varieties of data collection instruments including questionnaire administered with randomly selected enterprises and collected valid data from a total of 300 enterprises; conducted 24 Key informant interviews with diferent ofcials in the Cities who are concerned with WASH products and services including private WASH goods and service suppliers; conducted 12 FGDs with utility ofcers; community representatives; enterprise owners to triangulate the data come up with the questionnaire result. The WASH business landscape in Ethiopia faced several challenges that hinder its ability to create demand for WASH products and services among enterprises. These challenges include inadequate and inefective demand creation eforts, low capacity of private commercial operators, limited fnancial services available to both the private sector and households, inadequate business support services at the local level, and inadequate workspace for WASH enterprises. However, there are also several drivers of WASH sector development in the city, such as increased government commitment to supporting access to WASH services through policies and budget support, support from development partners like the World Bank, and an increase in the city’s population. The structural equation modeling result revealed that fnance resources, administrative skills, marketing competence, and technical support were found to be signifcant. However, infrastructure facility was found insignifcant. The study recommended that the government and stakeholders come together to support enterprises and play their roles in the growth of enterprises in Ethiopia.
Keywords: Determinant, Enterprise, Growth, Structural equation modeling
Background of the study
In emerging nations, micro- and small companies are the main drivers of economic expansion, employment creation, and poverty eradication (Harris et al., 2006; Mamo, 2022). Te relevance of micro- and small businesses rests in the development of new technologies, the encouragement of private ownership, and the development of entrepreneurial abilities (Bardales-Cárdenas et al., 2024). Tey are extensively spread throughout every nation since they are easier to set up and require less startup money, manpower, technology expertise, and managerial skill. Even in times of economic crisis, small enterprises are able to react swiftly to the changing environment due to their fexibility. Tese businesses employ local resources as well as their abilities to create a range of goods for the market (Girma et al., 2019). Micro- and small businesses in Ethiopia have a great potential to provide jobs for the majority of the urban labor population (Geleta & Sleshi, 2019). Documents from Ethiopia, including those on industrial policy, development strategy, and growth and transformation plans, highlight the signifcance of micro- and small businesses (Meresa, 2020; Wodajo et al., 2020). In addition, they are signifcant sources of income for those who were unable to fnd work in other industries and help to alleviate the issue of low-wage workers’ income failure. By supporting and fostering the growth of MSEs in the WASH sector, Ethiopia can accelerate its economic development and achieve its sustainable development goals. In Ethiopia, micro- and small businesses operate as suppliers of goods and services, promote technology transfer, generate income, and create jobs. MSEs in the WASH sector create jobs, particularly in rural areas where employment opportunities are limited (Simegn & Mogessie, 2021). Tis directly contributes to poverty reduction and household incomes. As MSEs grow, they stimulate economic activity in surrounding communities, leading to increased demand for goods and services, supporting other businesses, and creating a multiplier efect on economic growth (Abate & Sheferaw, 2023). A variety of variables afect the development of these businesses when compared to other African nations, Ethiopia’s businesses fare poorly (Wodajo et al., 2020; Abate & Sheferaw, 2023). Te majority of businesses in the nation fail or are in the survival stage owing to various factors, while only a small number of them grow and graduate to the medium and higher levels (Mulugeta & Atwal, 2023). Micro- and small enterprises have emerged as key players in the WASH sector in Ethiopia, providing essential services such as water supply, sanitation facilities, and hygiene promotion. Despite their signifcant contribution to the sector, there is a lack of comprehensive understanding of the market dynamics and factors that infuence the success or failure of MSEs operating in the WASH sector. Tis study aims to fll this gap by exploring the market landscape and determinants of MSEs working in the WASH sector in Ethiopia. Te research identify the challenges faced by MSEs in accessing fnance, technology, and markets, as well as the opportunities and potential solutions that can help them overcome these challenges. Te fndings of this study inform policy and practice, enabling policymakers, investors, and development practitioners to design efective interventions that can support the growth and sustainability of MSEs in the WASH sector in Ethiopia. Tere are four sections in the paper. A survey of the theoretical and empirical literature on business landscape and determinants of enterprise growth is described in the frst section. Te methodology of the study and the specifcs of data gathering are covered in the second section. Te third portion, which explores business landscape and determinants of enterprise growth and discussion of the fndings, contains the fnding of the study. Evidence from empirical studies was used to interpret the results. Te fourth section concludes with recommendations for further study.
Statement of the problem
Due to the particular difculties they encounter, micro- and small businesses are less equipped to make a meaningful contribution to sustainable development (Orser, 2000). Te majority of micro- and small enterprises start out small and do not expand at all. Small businesses do not have the opportunity to learn from their prior mistakes because of their small size, which makes basic management errors likely to result in the certain death of a small business. In Ethiopia, micro- and small enterprises have a major role in industrial development, since their products are utilized in Medium or larger scale industries as semi-products or raw materials. Tey utilize and add value to local resources and are better positioned to meet local needs in small markets. Creating more successful enterprises could create new jobs, increase trade and, consequently, the country’s GDP. However, their contribution is very low as compared to that of other countries and they are facing various challenges and problems (Girma et al., 2019; Wodajo et al., 2020). Te Ethiopian government recognizes the importance of WASH and has implemented various policies and programs to support the sector (Mamo & Novotný, 2024). Tis includes funding for sanitation projects, subsidies for water treatment technologies, and incentives for businesses involved in WASH. However, the regulatory landscape for WASH is complex and challenging for MSEs. Permits, licensing, and compliance with sanitation standards create bureaucratic barriers and add to the time and cost of operations. Financing for WASH enterprises is challenging to secure, as investors may perceive the sector as risky or lacking attractive returns compared to other sectors. In Ethiopia, some MSEs were organized in the towns and playing their role in efectively delivering WASH-related products and services at fair price on one hand and generating fair proft (Abate & Sheferaw, 2023). Despite the opportunities and potential for growth in the WASH sector for micro- and small enterprises in Ethiopia, there are several problems and challenges that hinder their growth and impact. Addressing challenges of MSEs operating in the WASH sector is essential to unlock their growth potential and contribute to sustainable development goals (Tesema & Haimanot, 2024). Reports by diferent non-government organizations examined the key determinants of growth for MSEs operating in the WASH sector in Ethiopia. Te reports emphasized the importance of access to fnance, capacity building, technology adoption, market linkages, and regulatory compliance for enhancing the business landscape of MSEs (World Bank, 2019; Oxfam, 2023; Girmay et al., 2023). A modest number of research in Ethiopia have been conducted in various regions to determine the various elements that infuence growth of micro- and small enterprises (Debelo et al., 2015; Fisha, 2016; Geleta & Sleshi, 2019; Meresa, 2020; Yesuf, 2021; Mamo, 2022) to name a few. Te outcomes of research are controversial with methodological limitations. As far as the knowledge of the researcher there is no research conducted in business landscape of micro- and small enterprises working in the WASH sector. Tere is a lack of comprehensive understanding on market landscape and determinants of micro- and small enterprises working in the WASH sector in Ethiopia and dynamics and factors that infuence the success or failure of micro- and small enterprises operating in the WASH sector. Tis lack of understanding makes it difcult for policymakers, investors, and development practitioners to design efective interventions that can support the growth and sustainability of micro- and small enterprises in this sector. Moreover, a single variable was utilized by many researchers to measure enterprise growth. However, comprehensive measurement of success going beyond a single indicator and enterprise growth should be measured with sales volume and number of employment. Terefore, there is a need for research to explore the market landscape and determinants of micro- and small enterprises working in the WASH sector in Ethiopia to inform policy and practice.
Review of related literature Business landscape and determinants of micro‑ and small enterprise growth Micro- and small enterprises have emerged as key players in the WASH sector, providing essential services such as water supply, sanitation facilities, and hygiene promotion (Girmay et al., 2023; World Bank, 2019). Te WASH sector in Ethiopia has undergone signifcant changes over the past few decades, with the government and development partners investing heavily in infrastructure development, policy reforms, and capacity building initiatives. Te government and development partners have prioritized the sector, providing funding and technical assistance to support infrastructure development and capacity building initiatives. Tere is also growing awareness among communities and policymakers about the importance of WASH services for improving health and reducing poverty (Ministry of Water, Irrigation and Energy, 2019; WHO, 2020; USAID, 2024). However, despite their potential benefts, MSEs operating in the WASH sector face numerous challenges that can hinder their growth and sustainability. A considerable number of business enterprises in Ethiopia have folded and ceased operations as a result of several circumstances that have hampered their growth and operations (Fissiha, 2016). Te expansion of micro- and small businesses is impacted by various factors. Tey may have a direct, indirect, or combined impact on the growth. Enterprise growth was infuenced both directly and indirectly by human capital. Training combined with work experience in the same industry signifcantly boosts the growth of micro- and small businesses. In addition to the direct infuence, social capital factors such as organizational network and resource sharing with the business, internal capabilities, and organizational structure have a big impact on the growth of the business (Wodajo et al., 2020). It has been observed that businesses with larger beginning investments have a higher likelihood of seeing better growth than those with lesser frst investments. Accordingly, a study by Fissiha (2016) on the factors infuencing the growth of micro- and small businesses in Ethiopia discovered a favorable correlation between initial investment and growth. In order to generate goods or services, businesses might have forward linkage with their customers and backward linkage with their input suppliers. Tis is meant to imply that sufcient supply of raw materials promotes good growth of businesses and that a lack of raw materials may act as a growth barrier. Tus, there is a correlation between the expansion of businesses and market connectivity (Debelo et al., 2015; Amentie et al. 2016; Meressa, 2020). Credit availability guarantees businesses’ smooth functioning by providing working cash. Terefore, if there is access to fnancing, the likelihood of businesses failing is low. Finance-accessible businesses outperform those with capital shortages in terms of growth (Leza et al., 2016; Meressa, 2020; Teka, 2022). Financial accessibility guarantees business proftability by providing working capital. In this regard, research by Tekele (2019) claimed that having a high working capital enables for the operation of large businesses and the use of cutting-edge technology, both of which boost productivity and quality. Water, power, roads, and telephone service are examples of public physical infrastructure services that must be accessible for a frm to start, grow, and operate well. Access to public physical infrastructure services is a fundamental barrier to the survival and expansion of micro- and small businesses (Meressa, 2020; Alene, 2020). Legal and administrative factors have the most efects on the performance of women businesses, according to earlier research by Girma (2015). Tis is meant to imply that this happens as a result of a lack of assistance from the government, access to decisionmakers, bureaucracies, and general legal and administrative factors. Geleta and Sleshi (2019) identifed manufacturing sector characteristics, entrepreneurial competency, managerial skills, market access, innovation, large initial investment size, and availability to fnance as important determinants of business growth. Based on their research, management skills had an impact on an enterprise’s likelihood of growth. Market access, initial investment size, and entrepreneurial skill plays signifcant role on enterprises growth. Accesses to capital and innovative activities, however, have a detrimental efect on business expansion. Te factors infuencing the growth of micro- and small businesses discovered that entrepreneurial competence, management abilities, market access, access to fnance, formal accounting records, government support, technical assistance and training have a positive statistically signifcant impact on the growth of micro- and small businesses (Geleta & Sleshi, 2019; Andaregie et al., 2022). Te WASH sector in Ethiopia is a critical area of focus for development practitioners, policymakers, and investors. MSEs have emerged as key players in the sector, providing essential services such as water supply, sanitation facilities, and hygiene promotion. However, they face numerous challenges that can hinder their growth and sustainability. Understanding the market landscape and determinants of MSEs working in the WASH sector is crucial for designing efective interventions that can support their growth and sustainability. Te fndings of this study will inform policy and practice, enabling policymakers, investors, and development practitioners to design efective interventions that can support the growth and sustainability of MSEs in the WASH sector in Ethiopia.
Measurement of micro‑ and small enterprise growth
Micro- and small businesses are important for the socioeconomic progress of both industrialized and developing nations, yet many of them fail in the frst few years after they are founded. Some of those in operation expand more quickly than others. Terefore, it is crucial to pinpoint the causes of success because doing so encourages newcomers to the industry to take these variables into account and apply them to their own future careers (Farouk et al., 2022). Development of enterprises is seen as a key factor in competitiveness, employment, economic growth, and social inclusion (Meressa, 2020; Beriso, 2021). Depending on the objectives of each organization, measuring business growth will vary. Te entrepreneurial actions that are crucial to producing the impacts are measured by entrepreneurial performance (Estensoro et al., 2022). Aspects of growth defnition were collaboratively changed in a study by Gupta et al. (2013). Growth can be outlined in terms of generating revenue, adding value, and increasing the size of the business. Moreover, qualitative characteristics such as market share, product quality, and customer satisfaction can be used to evaluate it. Examining a company’s level of growth or success is one method for assessing its performance. Te most signifcant, trustworthy, and accessible indicator of a frm’s performance is considered to be frm growth (Girma et al., 2019; Meressa, 2020). Many factors, including survival, proft, return on investment, sales growth, market shares, number of employees, owner’s happiness, reputation, and others, can be used to gauge a company’s progress. As a result, success might be seen diferently by each individual. Some scholars frequently used these performance indicators as proxies (Fauzul, 2010; Tubastuvi, 2014; Sefani, 2012). Van Dijk (2005) believes that the success of African micro- and small businesses comes more from the contribution that these companies ofer to the economy. Tree success metrics are crucial to him. Proft is the frst. Yet, because calculating proft for small enterprises is challenging, he suggests substituting the operator’s income. Another second measure of success, in his opinion, is the creation of jobs by an organization. As a result, the size of a business as measured by the number of employees is a key success factor. Te frm turnover is a last sign of success that he includes, particularly if one is trying to understand how the informal sector afects the overall picture. Sales and employment are particularly often utilized indicators for business growth among the aforementioned metrics. Te key rationale for using employment as an indication of growth is that using other dimensions of success indicators will be more challenging, for instance, if enterprises do not maintain complete books of records (Bigsten & Gebreeyesus, 2007). Depending on the accessibility of getting data and how it relates to the research aims, diferent studies have used diferent growth metrics (Wodajo et al., 2020; Yesuf, 2021; Beriso, 2021; Astatkie et al., 2024). Consequently, using as many complete growth indicators as you can is the safest course of action. As a result, this study adopted a methodology for measuring organization growth that took into account two key variables (sales volume, and employee number). Tis is due to the fact that employment and sales growth both easily represent short- and long-term developments in an organization. Sales and employment are also more objective indicators than other metrics like market shares.
Empirical evidence on determinants of micro‑ and small enterprises growth
In order to generate goods or services, businesses might have forward linkage with their customers and backward linkage with their input suppliers. Tis is meant to imply that sufcient supply of raw materials promote good growth of businesses and that a lack of raw materials may act as a growth barrier (Debelo et al., 2015). It has been observed that businesses with larger beginning investments have a higher likelihood of seeing better growth than those with lesser frst investments. Accordingly, a study by Fissiha (2016) on the factors infuencing the growth of micro- and small businesses in Ethiopia discovered a favorable correlation between initial investment and growth. Te main factors infuencing the growth of MSEs in Ethiopia’s WASH sector were investigated in a 2019 World Bank report. Te assessment report highlighted the signifcance of regulatory compliance, market connections, technology adoption, capacity building, and fnance access in improving the competitiveness and sustainability of MSEs. In addition, it emphasized how important environmental sustainability and social impact measurement are to the sector’s growth and ability to draw in capital. Similarly, Te United Nations Development Programme (UNDP) looked into the fnancial difculties faced by MSEs in Ethiopia’s WASH sector in a 2021 report. Te report identifed several signifcant obstacles impeding the expansion of MSEs, including restricted availability of formal fnancial services, exorbitant interest rates, collateral restrictions, and a defciency of customized fnancing options. Andaregie et al. (2022) study on the factors infuencing the growth of micro- and small businesses discovered that the provision of starting capital, exports of goods, formal accounting records, government loans, exports of goods, and training have a positive statistically signifcant impact on the growth of micro- and small businesses. According to Geleta and Sleshi’s (2019) study, entrepreneurial competence, management abilities, market access, innovation, large initial investment size, access to fnance, and manufacturing sector characteristics were found as a major infuencer of micro- and small enterprises growth. According to Wodajo et al. (2020), access to inputs has a particularly strong and benefcial impact on growth. Similarly Yesuf (2021) study shows that frm success have favorable relationship with access to fnancing, working space, initial capital, industry category, market linkage, and ICT use. According to Alene’s research (2020), there are several factors that are important in explaining how well women entrepreneurs perform, including their educational background, access to business training, prior experience, access to fnancing, government support, access to business information, land ownership, and tax. According to a Kassa (2021) study, age, family business history, access to funding, and interest rates have an impact on the expansion of a business. Jordo and Casas (2022) fndings revealed that the network formation process is an important factor for creating, systematizing, and sharing data, information, and knowledge, which promotes sustainable growth for SMEs and their networks. Efcient working capital management is very important for the frm’s to have attractive performance (Mengstie et al., 2024). Ismail and Muzamil (2022) explore the internal and external factors that affect the survival and success of SMEs in the Middle Eastern country of Oman. The result of the study shows that for micro- and small enterprise survival and growth, the education system needs intervention. Other areas of intervention include transforming business culture, focusing on managerial skills, and improving the procedures required for establishing a business are identified. According to Suminah et al.
(2022) study in Surakarta, Indonesia, the results showed that age, number of workers, length of business, empowerment, human capital, business capital, type of business, business category, and production technology have influence on the income of MSME performers. A study by Oxfam in 2023 investigated the market linkages and distribution challenges faced by MSEs in the WASH sector in Ethiopia (Ameha, 2023). Based on the research, the main barriers impeding MSEs from expanding their customer base are inefficient supply chains, restricted access to distribution networks, and insufficient marketing knowledge. The sustainability of small, knowledge-intensive firms engaged in the agriculture sector is examined by Aliabadi et al. (2023). According to the findings, the number of educational courses, the number of constituents, the morale of teamwork and cooperation, the availability of the market, the use of social networks, the manager’s job experience, and the degree of reliance on imported equipment and technology were the main factors supporting the sustainability of the small-scale knowledge-intensive agricultural enterprises. The growth of micro- and small enterprises (MSEs) in the WASH sector in Ethiopia is intricately linked to the United Nations sustainable development goals (SDGs), particularly SDG 6 (clean water and sanitation) and SDG 8 (decent work and economic growth). Research indicates that MSEs are pivotal in addressing the significant gaps in water and sanitation services in Ethiopia, where access remains limited, particularly in rural areas (World Bank, 2019). These enterprises not only contribute to improving access to clean water and sanitation facilities but also create employment opportunities, thereby enhancing economic resilience (UNDP, 2019). Studies show that investments in WASH-related MSEs can lead to a multiplier effect on local economies, fostering innovation and sustainable practices that align with SDG targets (Ethiopian Ministry of Water and Energy, 2021). Furthermore, by promoting gender inclusivity and empowering local communities, WASH MSEs support broader social equity goals, reinforcing the interconnections between sustainable development, public health, and economic growth. Overall, the integration of MSEs into the WASH sector represents a strategic approach to achieving both SDG 6 and SDG 8 in Ethiopia. Based on the above literature the following hypothesis developed: H1: financial resource has a significant effect on WASH micro- and small enterprises growth. H2: technical support has significant effect on the growth of WASH micro- and small enterprises. H3: administrative support has significant effect on enterprise growth. H4: infrastructure facility has a significant effect on the growth of enterprises working on WASH sector. H5: marketing competency has a significant effect on the growth of enterprises working on WASH sector. Based on the theoretical and empirical review conceptual framework of the study was developed. As it can be seen in Fig. 1, the independent and dependent variables are clearly shown.
Research methodology
Assessing business landscape and investigating the factors that contribute to enterprise growth in Ethiopia was the goal of this study. Descriptive and explanatory research design with cross-sectional survey was used to accomplish this objective. Cross-sectional survey was employed because the researcher was interested in examining the phenomenon at only one point in time without any attempt to manipulate the sample respondents. Te researcher employs a mixed-methods approach to gain a comprehensive understanding of the growth determinants and landscape assessment of micro- and small enterprises in WASH sector. By utilizing qualitative methods such as focus group discussions and key informant interviews, the study captures nuanced insights and perspectives from stakeholders directly involved in the WASH landscape. Tese qualitative data collection techniques allow for an in-depth exploration of the challenges, opportunities, and contextual factors that infuence the operations and growth potential of enterprises. Participants shared their experiences, perceptions, and recommendations, enriching the analysis with their frst-hand knowledge. In addition to qualitative methods, structured questionnaires are employed to gather quantitative data, enabling the researcher to quantify trends and patterns related to the growth determinants of WASH enterprises. Tis dual approach allows for a robust triangulation of data, where qualitative fndings illuminate and explain quantitative results. By analyzing both sets of data, the researcher identifed correlations and draw more informed conclusions about the factors that drive or hinder the growth of these enterprises. Moreover, examination and analysis of documents and secondary sources of data were carried out by the researcher. Publications and unpublished materials, such as reports from city-level government ofces and policies, guidelines, and strategies, are among the secondary sources of data that were examined. Respondents to the key informant interview include fnancial institutions, development partners, sanitation and water product suppliers at the city, the utility manager, the head of the sanitation service department, the head of the health ofce, and BDS providers like the TVET dean and the head of the job creation ofce. Four people from each city participated in the 24 key informant interviews that were done. Job creation ofce heads and senior experts, health ofcer, utility ofce manages, private service providers, and microfnance experts in each city participated in a focus group discussion. Small group of 8 to 12 people participated in the discussions. Twelve focus group discussants in all have been conducted. Te data were collected from six major cities of Ethiopia namely Bishoftu, Adama, Shashemene, Hawasa, Harar. Registered enterprises were chosen because it was easy to access the study sampling frame and details from the enterprise development ofce. Data from the city administration ofces registers indicated that there were 6000 registered micro- and small enterprises working in WASH sector. Using model developed by Taro Yamane (1967) for determining sample sizes at 95% confdence level and 5% margin of error, a sample size of 300 respondents (enterprises owners/managers) were obtained from the population of 6000 enterprises. To determine the sample size for each of the city’s sub-cities, a sampling proportion derived from each sub-population city’s distribution is employed. Te sample of enterprises is then selected from each stratum of the sub-city using simple random sampling technique. Te researcher reviewed both public and unpublished papers in order to extract secondary data that was relevant and signifcant for the study in order to obtain data for triangulation purposes as well as outcomes. Te business environment of micro- and small businesses operating in the WASH sector is examined through qualitative analysis. Results from the qualitative survey were subjected to text analysis. Both descriptive and inferential statistics were used for the quantitative study. Structured equation modeling (SEM) was employed to investigate determinants of micro- and small enterprises growth. Enterprise growth is a latent variable that is dependent and is measured by two indicators, necessitating sophisticated statistical analysis. Te ability to estimate complex models with numerous constructs, indicator variables, and structural routes makes the SEM method appealing to many researchers (Hair et al., 2019). Major assumptions to be verifed in structural equation modeling: model ftness measures: CMIN/DF, GFI, CFI, and RMSEA were performed and fulflled. Te structured model ft was satisfactory and the model was estimated which showed good ftness. Te results from focus group discussions (FGDs) and key informant interviews (KIIs) signifcantly enhance the structural equation modeling (SEM) analysis. Te qualitative insights gathered from FGDs and KIIs help identify key variables and constructs relevant to the growth of micro- and small enterprises in the WASH sector. Te qualitative fndings provided context to the quantitative data, helping to interpret the SEM results more meaningfully.
Results and discussion
Business landscape in WASH micro‑ and small enterprises Te key informant interviews and focus group discussions conducted in six cities of Ethiopia results valuable insights into the business landscape for WASH micro- and small enterprises in the country. 24 key informant interviews and 12 focus group discussion were conducted with diferent stakeholders, city and sub-city levels. In addition, secondary data were collected from six cities. Both the focus group discussion and key informant interview results clearly show that the business landscape for micro- and small enterprises working in the WASH sector presents both opportunities and challenges. Tere are many enterprises working on WASH products and services, with high demand for WASH products and services in cities as a result of the government’s strategy to improve access to clean water and sanitation facilities for all citizens. Te interviews disclosed that programs and initiatives have been put in place by the government and stakeholders to facilitate the growth of WASH enterprises and entrepreneurs in the cities. Tese initiatives include giving WASH micro- and small businesses technical support and training, making it easier for them to get funding and investment possibilities, and establishing supportive policy frameworks that encourage private sector involvement in WASH sector. Te WASH industry has been aggressively promoted by the Ethiopian government through a number of programs and policies. One such initiative to increase the nation’s sanitation coverage is the National Hygiene and Sanitation Strategy. WASH businesses can obtain fnance, partnerships, and market prospects with the help of the government. Te Ethiopian Constitution of 1995 contains two articles that provide legal support for micro- and small businesses in the WASH sector: Article 44 states that everyone has the right to a clean and healthy environment, and Article 92 states that the government shall work to ensure that all Ethiopians live in a clean and healthy environment. Te availability of incentives for WASH market participants to participate in the activities is attributed to a number of factors. One of these motivators is the enormous development potential of the WASH sector, which is fueled by the steadily rising demand for WASH goods and services. Micro- and small enterprises have been acknowledged as a crucial player in economic growth and the fght against poverty. Encouraging private sector involvement creates an atmosphere that is both enabling and incentivizing, hence improving the chances of generating income. Te WASH market is enormous because to the rising rate of urbanization, rural-to-urban migration, and population increase in cities. It also grows quickly as a result of increased public awareness of safe WASH behaviors and practices.
Tere are a number of institutions, both private and public, that provide support to micro- and small enterprises in major cities and towns. Tis includes the Job Creation Ofce, the TVET Authority, the City Chambers of Commerce, and private business development consultants. However, from the interviews done with the respective informants, there are no WASH-tailored business development service provision systems in cities. Interview result with job creation ofces revealed that the ofce provides diferent services: training, business advisory service, working premises. Job creation ofce mainly support startup working in water and sanitation services with the aim of encouraging accessing water and sanitations to citizens. Te job creation ofces of six cities with onestop centers in all of the woredas in the city provide business advisory services to startup and existing enterprises. It also facilitates access to fnancing and investment opportunities, creating an enabling environment for private sector engagement in the city. Key informant interviews regarding the enterprise supports ofered were carried out with City TVET deans. Te deans stated that, in response to requests from the city utility and job development ofces, the city-level centers had ofered training pertaining to Urban WASH business. Following the completion of all formal education and training, the TVET’s training package includes short-term training in a variety of skill-enhancing areas, including entrepreneurship training that is required. Furthermore, business development services are ofered with an emphasis on key business pillars such as marketing, fnance, operations, human resource management, and business plan development. Moreover, skill training relevant to corporate growth strategies is ofered. A vast array of trainings pertaining to innovation and technology are also provided by TVET. In doing so, even while the programs are customized to meet the unique needs of each target benefciary, the gender, youth, and individuals with disabilities receive the highest priority. WASH businesses in Ethiopia have a number of difculties despite the rising demand. Tese consist of low fnancial access, insufcient technical expertise and capability, poor infrastructure availability, and regulatory problems. A signifcant challenge to the functioning of the WASH business landscape is the absence of a legislative framework that facilitates funding WASH micro- and small enterprises. Since most micro- and small businesses cannot aford to provide collateral as a guarantee for loan security, formal fnancial institutions like banks do not present favorable conditions for fnancing WASH businesses, as indicated by the results of the household survey. Tis is because fnancial service providers, including commercial banks and microfnance institutions typically have little experience working with such WASH businesses.
According to Table 1, low fnancial access (95%), inadequate market access (85%), and insufcient technical support (80%) are the three major challenges faced by micro- and small enterprises working in water and sanitation products and services. Te results of the interviews showed that WASH enterprises lacked technical expertise. Adopting new technologies, maintaining quality control, and developing new products are obstacles that many micro- and small businesses must overcome. According to the study, WASH businesses in Ethiopia are becoming more competitive. Micro- and small businesses fnd it difcult to stand out in the market, draw in clients, and diferentiate themselves in this highly competitive environment.
According to the study result, one major challenge is the limited access to fnancing for WASH MSEs, hindering their expansion and innovation. Complex regulations and bureaucratic processes can create challenges for WASH MSEs, making it difcult to operate efciently and grow their businesses. Insufcient infrastructure and inadequate water supply systems can hamper the growth of WASH MSEs and their ability to efectively reach all communities. Reaching target markets and building trust with communities can be challenging for WASH MSEs, particularly in underserved areas. Lack of access to fnance, poor book keeping and accounting system, shortage of adequate initial
Table 1: Challenges of Micro- and Small Enterprises Working in WASH Products and Services
| Challenges | Number of Responses | Percentage (%) |
|---|---|---|
| Low financial access | 285 | 95 |
| Insufficient technical support | 240 | 80 |
| Inadequate market linkage | 255 | 85 |
| Poor infrastructure availability | 222 | 74 |
| Inadequate legal support | 210 | 70 |
| Low focus on product development | 180 | 60 |
investment, shortage of working capital, poor repayment culture and their inappropriate use of credit are the major fnancial factors that determine the sustain ability and growth of MSEs in Ethiopia (Alene, 2020; Teka, 2022). Te study clearly identifed diferent opportunities. Government support through policies, funding, and partnerships can signifcantly boost the growth of WASH MSEs and their contribution to achieving sustainable development goals. Active involvement of communities in WASH projects promote ownership, sustainability, and create a greater impact on local development. While WASH SMEs in Ethiopia face signifcant challenges, the opportunities for growth and positive impact are considerable. Navigating the complex economic and regulatory environment requires strong leadership, innovative solutions, and strategic partnerships. By embracing these opportunities, WASH SMEs can contribute signifcantly.
Micro- and small enterprises (MSEs) in the WASH sector play a crucial role in Ethiopia’s economic development by creating jobs and stimulating local economies. Tey enhance public health and well-being, contribute to infrastructure development, and drive innovation. In addition, these enterprises foster environmental sustainability and promote inclusive growth, empowering communities and improving livelihoods across the country. Te growth of WASH MSEs contributes to sustainable economic development by creating jobs, increasing local incomes, and stimulating local economies (Simegn & Mogessie, 2021; Meramveliotakis & Manolis, 2021a, 2021b). WASH MSEs often focus on developing environmentally friendly solutions, promoting water conservation, and managing wastewater efectively, contributing to a sustainable environment. By improving access to clean water and sanitation, WASH MSEs enhance community health, reduce disease burden, improve education, and promote social equity, contributing to a sustainable society.
Based on the study results, the business landscape for WASH micro- and small enterprises in Ethiopia is promising, with opportunities for income and growth. However, addressing the challenges and leveraging the opportunities available will be vital for the success of these micro- and small enterprises. By focusing on quality, innovation by enterprises, access to fnance, capacity building, the regulatory environment, and market linkages by the government, MSEs can contribute to improving access to clean water and sanitation services in Ethiopia.
Determinants of WASH enterprise growth Structural equation modeling was applied to estimate the efects of determinant factors on enterprises growth working in WASH products and services. Enterprises growth is infuenced by numerous factors. However, this paper only focuses on administrative support, marketing competency, fnance resource, technical support, and infrastructure facility which diferent researcher’s believed signifcant. According to the structural equation result Administrative support, marketing competency, fnance resource, technical support were found to be signifcant. However, infrastructure facilities were found to be insignifcant for WASH enterprises growth (see Table 2). At a level of signifcance of less than 1%, the administrative support is statistically signifcant for the growth of the enterprises. Compared to businesses that did not have better administrator support; those receiving it had a better chance of expanding. The
Table 2: AMOS Results
| Fit Indices | Value |
|---|---|
| CMIN/DF | 2.8 |
| GFI | 0.991 |
| CFI | 0.994 |
| RMSEA | 0.078 |
| Path | Estimate | S.E. | C.R. | P | Significance |
|---|---|---|---|---|---|
| Enterprise growth <– Finance resource | 0.296 | 0.038 | 7.700 | *** | Significant |
| Enterprise growth <– Marketing competency | 0.271 | 0.044 | 6.191 | *** | Significant |
| Enterprise growth <– Administrative support | 0.171 | 0.045 | 3.835 | *** | Significant |
| Enterprise growth <– Infrastructure facility | 0.066 | 0.048 | 1.394 | 0.163 | Insignificant |
| Enterprise growth <– Technical support | 0.214 | 0.038 | 5.593 | *** | Significant |
Notes: *** denotes P < 0.001
fndings of this research support the fndings of the research conducted by Geleta and Sleshi (2019). Te owner’s poor knowledge and skills, the lack of qualifed staf to advise the owner on administrative issues are the root causes of micro- and small enterprises failure. Enterprise operators in undeveloped countries have very poor decision-making abilities, and sound management (Aremu & Adeyemi, 2011). In addition, a lack of managerial abilities contributes to production issues since it makes it difcult to coordinate the production process, troubleshoot equipment and machinery breakdowns, and hire experts in planning, fnance, and administration (Ayinaddis, 2023a, 2023b).
Many owners and managers of micro- and small enterprises lack managerial expertise and training. Trough a process of trial and error, the typical managers of small enterprises establish their unique management style. As a result, their managerial approach is probably more intuitive than analytical, more focused on short-term concerns than long-term ones, and conceptually more opportunistic than strategic. Enterprise owners are ill-equipped to deal with changes in the business environment and to plan appropriate changes in technology as a result of inadequate managerial abilities.
At a 1% signifcance level, fnancial resources and record-keeping practices have a signifcant impact on business growth. Fantaye (2016) and Geleta and Sleshi (2019) found that businesses who have a systematic record-keeping and fnancial management system in their internal operations outperform those that do not. Tracking the earnings and losses helps SMEs operators understand the success, profts, and failure of their businesses and makes it easier for them to make changes to how their business is run. According to Drbie (2013) and Yesuf (2021), fnancing has become the main obstacle for small-scale businesses in Ethiopia. Aside from local governments and regional microfnance organizations, as well as their personal savings and family support, banks in Ethiopia do not lend money to micro- and small enterprises because of collateral obligations and other requirements.
Te provision of starting capital, have a positive statistically signifcant impact on the growth of micro- and small frms (Andaregie et al., 2022; Ministry of health, 2020). In his study on the factors infuencing business expansion in Ethiopia, Fissiha (2016) found a strong correlation between beginning capital size and business expansion. According to this research, business owners who invested more money when they frst began out have a higher chance of experiencing faster growth than those who invested less money (Karamti & Wannes, 2022). An important fnding in Table 3 indicates that the marketing competence has a signifcant impact on an enterprise growth. Previous study made by Mulugeta (2011) and
Table 3: Hypothesis Test Results
| Hypothesis | P-Value | Result | Accept/Reject |
|---|---|---|---|
| H1: Financial resource has a significant effect on WASH micro- and small enterprises growth | 0.00 | Accepted | Accept |
| H2: Technical support has significant effect on the growth of WASH micro- and small enterprises | 0.01 | Accepted | Accept |
| H3: Administrative support has significant effect on WASH enterprises growth | 0.001 | Accepted | Accept |
| H4: Infrastructure facility has a significant effect on the growth of enterprises working on WASH sector | 0.163 | Rejected | Reject |
| H5: Marketing competency has significant effect on the growth of enterprises working on WASH sector | 0.001 | Accepted | Accept |
Geleta and Sleshi (2019) found similar result. According to them, the major issues facing businesses can be categorized as market-related issues, which are brought on by weak market integration and subpar advertising. For small-scale businesses to be promoted, grown, and developed, marketing knowledge is crucial. Yet, difculties in launching a frm and the continued expansion of the industry stem from the inability to ofer goods and services, a lack of efective marketing channels, and a lack of marketing expertise (Drbie, 2013; Yesuf, 2021). Tis indicates that market accessibility is what drives or encourages the micro- and small enterprise to be more likely to grow quickly. Businesses may have a forward linkage with their customers and a backward linkage with their input suppliers in order to provide goods or services. Tis is intended to imply that adequate supplies of raw materials encourage strong business growth and that a shortage of raw materials may serve as a growth inhibitor. Tus, there is a link between frm growth and market connectivity (Debelo et al., 2015; Amentie et al., 2016; Meressa, 2020). According to structural equation result, technical support has signifcant efect on enterprise growth. Tis outcome matches with the previous prediction and that of Ababiya et al. (2015). Tis is due to the fact that knowledge and skills received from technical and business advisers may infuence operators and employees and drive them to be concerned about growth. Operators who have received proper training and information are more likely to make logical choices and have longer planning horizons. Tis implies that skilled and knowledgeable operators outnumbered untrained ones. Tis outcome matches both the previous prediction and the fndings of Abraham (2017) and Ababiya et al. (2015). Infrastructure facility is found an insignifcant determinant of enterprise growth (Table 2). Regulatory barriers or lack of supportive policies hindered the efectiveness of infrastructure investments, making them less impactful on enterprise growth. WASH enterprises might struggle more with fnancial constraints than with infrastructure issues. Access to capital is critical determinant of growth. Te result of the study is not consistent to previous researchers. According to a study by Getaneh (2023), poor roads, power outages, water shortages, and inaccessible telecommunications are the main obstacles that prevent primary, secondary, and tertiary production from taking place. Furthermore, Drbie (2013) found that businesses operating with
access to infrastructure facilities have a higher likelihood of enduring existence and growth than do businesses operating with insufcient infrastructures; in Ethiopia, power outages and poor water supply have a signifcant negative impact on business growth. MSE owners in Ethiopia reported that the development of their company is being hampered by a lack of efective, dependable, safe, and inexpensive infrastructure. Ethiopia’s physical infrastructure facilities have not been sufciently built or expanded to keep up with the rising demand from business activity. Infrastructure shortages have been a major barrier to the expansion of businesses and the sector (Bishoge, 2021; Edossa et al., 2016). Water, power, roads, and telephone service are examples of public physical infrastructure services that must be accessible for a frm to start, grow, and operate well. Access to public physical infrastructure services is a fundamental barrier to the survival and expansion of micro- and small businesses (Meressa, 2020; Alene, 2020; Jordão et al., 2022). Geleta and Sleshi (2019) identifed manufacturing sector characteristics, entrepreneurial competency, managerial skills, market access, large initial investment size, and availability to fnance as important determinants of business growth. Based on their research management skills had an impact on an enterprise’s likelihood of growth. Market access, initial investment size, and entrepreneurial skill plays signifcant role on enterprises growth. Ferejo et al. (2022) conducted a longitudinal study utilizing a random sample of 500 MSE from fve major cities in Ethiopia to evaluate the infuence of key factors that determine the long-term survival and viability of small businesses. According to their analysis, insufcient funding, poor managerial abilities, a lack of technical skills, and the inability to spend some of their profts are the variables that have the biggest impact on the long-term sustainability of businesses in Ethiopia. According to the fndings of Desta’s (2015) study, success factors have a substantial impact on the growth of micro- and small-business enterprises and other dependent variables. Similarly, Teka (2022) identifed the key variables afecting the performance of micro- and small businesses, management, fnancial, and entrepreneurial skills defciencies were the biggest roadblocks to business performance. Interview and focus group discussion result also support the structural equation result. Te city administration gives priority for micro- and small enterprises working in WASH product and service to achieve the Ethiopian government WASH 2030 goal. Ministry of labour and skills, polytechnic college, and entrepreneurship development institution provides. Providing business development service address market problem of WASH SMEs by providing information, facilitating the provision of consultancy services, encouraging skills and providing access to fnancial services. Te involvement of small- and medium-sized enterprises for the achievement of sustainable development is of paramount importance (Meramveliotakis & Manioudis, 2021a, 2021b; Deyganto, 2022; Wube & Atwal, 2024). Te work of WASH MSEs directly contributes to SDG 6 by providing clean water and sanitation solutions, improving access to basic services, and promoting hygiene practices (Weerasooriya et al., 2021). Te success of WASH MSEs in Ethiopia is crucial for achieving several targets under SDG 6, such as: ensuring availability and sustainable management of water and sanitation for all by 2030; achieve access to adequate and equitable sanitation and hygiene for all and end open defecation. WASH MSEs in Ethiopia are critical for achieving SDG 6 and contributing to sustainable development. By addressing challenges, harnessing opportunities, and strengthening partnerships, these businesses can play a crucial role in improving sanitation, water access, and overall well-being for millions of Ethiopians. Micro- and small enterprises are essential in achieving the millennium development goals because they help end world poverty by reducing hunger, improving nutrition and food security, and advancing sustainable agriculture (Wube and Atwal, 2024).
Conclusions, recommendations and policy implication
This market landscape and determinants of enterprises growth study is conducted in six major cities of Ethiopia. Te assessment is conducted through feld investigation using various data collection tools such as survey, KII, and FGD as well as through document review involving previous studies on the city and reports of the various city-level government ofces. A large number of WASH micro- and small enterprises are operating in Ethiopia. However, enterprises are not growing at higher levels. Te scarcity of research on the business landscape and determinants of micro- and small enterprise growth is the main motivation for conducting this research. Te objective of the study was assessing business landscape and examining the determinants of micro- and small enterprise growth. Te interview and focus group discussion result clearly shows that there are opportunities and problems in the business environment for micro- and small businesses in the WASH sector. Tese businesses are vital to the provision of basic services to communities, enhancement of public health, and advancement of sustainable development. But they frequently encounter major obstacles such as restricted fnancial access, poor infrastructure, and regulatory limitations. In order to grow in this highly competitive environment, micro- and small businesses operating in the WASH sector must make use of technology, partnership, and implement creative business strategies. Te fndings from the structural equation modeling indicate that factors such as administrative support, marketing competency, fnancial resources, and technical support play a crucial role in the growth of WASH enterprises in Ethiopia. Tese elements are essential for creating a robust operational framework that enables enterprises to thrive in a challenging environment. Administrative support ensures that enterprises navigate regulatory landscapes efectively, while marketing competency helps in reaching and engaging target communities. Moreover, adequate fnancial resources are vital for investment in necessary technologies and services, and technical support enhances the capacity of enterprises to deliver quality WASH solutions. Conversely, the insignifcance of infrastructure facilities in infuencing WASH enterprise growth suggests that merely improving physical infrastructure may not be sufcient to drive progress in this sector. Tis fnding emphasizes the need for a more holistic approach that prioritizes capacity building, efective management, and market-oriented strategies over traditional infrastructure investments.
By empirically determining determinants of enterprise growth, this study adds to the body of literature on the efects of administrative skill, marketing competence,fnancial resources, and technical support on enterprise growth. Te results point to the need for policy review and action to enhance enterprise operations. Te study recommends that for collaborations to be efective and dependable in contributing to the sustainability of enterprise growth and building a long lasting trust between collaborators, they must: (1) incorporate and accommodate diversity of perspectives from enterprises, fnancial institutions, and enterprise development ofces; (2) be interdependent and share a common interest in fnding solutions to enterprise problems; and (3) have a need for technical support by the government and facilitation of the generation of new knowledge and solutions for WASH enterprise-related problems. Tis study may also serve for policymakers, development partners, and industry stakeholders in creating enabling environment for micro- and small enterprises to drive positive change in the WASH sector in Ethiopia. Te study will have important contributions to make to the limited empirical study on business landscape and factors infuencing micro- and small enterprise growth, and legislators and the enterprise development ofces will beneft from this research.
Research limitations and suggestions for further studies
While conducting this research, some limitations were encountered. First, the study was limited urban city administrations. Future research should expand geographically to rural areas in terms of scope for better representativeness of the study population. Second, enterprise growth requires clear criteria to measure enterprise efectiveness. Tis would require a team of researchers’ analysis of enterprises growth practices, strategies, and institutionalized operations in their way of handling growth-related issues.
Abbreviations
- MSEs: Micro- and small enterprises
- WASH: Water, sanitation and health
- SDGs: United Nations sustainable development goals
- FGD: Focus group discussion
- SEM: Structural equation modeling
- KIIs: Key informant interview
Acknowledgements Not available.
Author Contributions The author has carried out the study.
Funding The author did not receive funding from any organization.
Availability of Data and Materials All data are available on hand.
Declarations
- Ethics Approval and Consent to Participate: During data collection, respondents’ consent was obtained by data collectors.
- Consent for Publication: Not applicable.
- Competing Interests: The author declares that there are no competing interests.
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